Business Environment Profiles - United Kingdom
Published: 28 May 2025
House price index
104 Index
4.1 %
The UK house price index (UK HPI) represents changes in the value of UK residential properties (i.e., detached houses, semi-detached houses, terraced houses, flats and maisonettes) and indicates trends in the UK housing market. The UK HPI applies a hedonic regression model that utilises the various sources of data on property price (e.g., HM Land Registry's Price Paid dataset) to allow for a true comparison of UK property prices in each period. The data is sourced from the Office for National Statistics (ONS) and HM Land Registry, using house sales data from HM Land Registry, Registers of Scotland, and Land and Property Services Northern Ireland. Forecast data is estimated by IBISWorld, with reference to Office for Budget Responsibility (OBR) forecasts submitted in its 'Economic and fiscal outlook – March 2022' publication. The figures are presented with a base month in 2015 (i.e., January 2015 = 100) and are averages of the UK HPI over each financial year (i.e., April-March).
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Over the five-year period through 2025-26, the UK HPI is forecast to increase at a compound annual rate of 4.1% to reach 104.1 points. Since 2012-13 inclusive, the UK HPI, on average over a given financial year, is assumed to have increased year-on-year, last posting an annual decline in 2011-12 (-1.3%). Despite banks and lenders introducing more stringent lending criteria for mortgage applicants (e.g., higher minimum loan-to-value (LTV), higher gross earnings requirements, down-valuations on bid property etc.), in order to repress fears of property bubble comparable to that labelled by many as the main culprit of the financial crash, robust demand for property ensued through much of the focus period, particularly in metropolitan regions and as the UK urban population swelled. Yet, while this effectively translated in to continually growth in house prices, the UK HPI growth rate decelerated pre-pandemic; the UK HPI grew by 6% year-on-year in 2016-17, with annual growth slowing in 2017-18 (4.5%), through 2018-19 (2.5%), and again in 2019-20 (1.1%). Most notable since the fallout from the EU referendum, there was a "general cooling in price growth", whereby Brexit-related market uncertainties had exerted an increasing drag on underlying sentiment, while a high degree of hesitancy when engaging in homebuying and homeselling stifled any exponential growth in the property market. Meanwhile, stamp duty land tax (SDLT) reform and a lack of affordable property on the market further limited any would-be budding growth in transactions activity, keeping restraints on the UK HPI.
Becoming a prevalent threat to public health in early-2020, the COVID-19 (coronavirus) pandemic, and related public health restrictions mandated to combat its spread, ravaged through markets across the economy - the UK property market was not immune, coming to an effective standstill during the Spring 2020 lockdown. With the UK market staring down the barrel of a severe economic recession, and with a temporary hiatus in much economic activity - not least the property and real estate market - homebuying and homeselling activity naturally became lacklustre in Q2 2020 in particular, threatening to blight the UK HPI. In addition to significant pandemic-induced income and job insecurities dissuading people from engaging in homebuying and homeselling activity while the UK market endured a recessionary period, a lack of available mortgage options on the market and more stringent lending criteria, as a reactionary response to the pandemic by lenders, had further constrained the property market – that is, until the UK government and associated bodies introduced coronavirus support measure to give a shot in the arm to an economic reboot.
Raising hopes of a relatively swift, post-Q2 2020 recovery in the housing market, the government, as administered via HM Revenue & Customs, temporarily reduced rates of SDLT for residential properties purchased – the SDLT holiday ceased in September 2021. Moreover, in an emergency response to initial economic downturn borne out from the pandemic, the Bank of England (BoE) Monetary Policy Committee (MPC) announced on 11 March 2020 that the base interest rate (official bank rate) would be cut from 0.75% back to its previous record low of 0.25%, significantly reducing borrowing costs in the hope of stimulating spend to drive an economic recovery. The BoE MPC went one-step further on 19 March 2020, slashing the base rate to an unprecedented low of 0.1%, a level at which the BoE MPC held until 16 December 2021. A mortgage guarantee scheme was also launched on 1 April 2021; announced in Budget 2021, the scheme, whereby government effectively compensates lenders if a homeowner defaults their mortgage, has been designed to encourage banks to offer 95% LTV mortgages again, after almost all offerings for 5% deposit mortgages were withdrawn by lenders at the onset of the pandemic as a financial safety precaution. Relatively similar to first iteration of the Help to Buy Scheme, the mortgage guarantee scheme will provisionally run until the end of 2022. Stimulatory measures such as the aforementioned released pent-up demand for property, driving up house prices as would-be homebuyers rushed to capitalise on measures intended to make it easier to buy a property and climb up the property ladder. Anecdotal reports also argued that a broad desire to secure more space, as home working became the "new norm", compounded demand-side house price inflation. In 2020-21, the UK HPI increased by 4.4%.
Driven by a relatively strong labour market conditions, in spite of pandemic-induced sector-wide disruptions, persistently low mortgage rates for most of the fiscal year, and last-ditch attempts to capitalise on temporary stimulus support measures, the UK HPI is estimated to have accelerated by 10% in 2021-22, the first double-digit percentage growth annually since 2004-05 (12.2%). Meanwhile, mortgage lenders and brokers have pointed to the property market benefiting from high household savings accumulated during the lockdown enabling a flurry of homebuying activity. However, the market has warned that earnings have grown less than house prices during the pandemic, pushing the house price-to-earnings ratio to an all-time high towards the latter stages of the year and heading into 2022-23 – commenting on this trend, the Guild of Property Professional stated "affordability remains a big concern, especially for first-time buyers worried about being priced out of the market". In 2022-23, there is an expectation that house price inflation may cool – the UK HPI is forecast to grow 11.5% on an annual basis – as surging inflation hits real income and as borrowing costs increase; with regards to the latter, the BoE MPC opted to hike the base rate to 0.25% on 16 December 2021, before moving to increase it to 0.5% on 3 February 2022 and again – to 0.75% - on 17 March 2022 as inflation hit 7% in March 2022, its highest level in 30 years. Inflation has continued to climb through 2022-23, rising to 11.5% in October 2022, with the BoE continuing to increase rates aggressively, reaching 3% in November 2022.
Where property consultant Knight Frank notes "the cost-of-living squeeze and rising mortgage rates will undoubtably take their toll on [residential property] demand later this year", property search website OnTheMarket.com agreed that growing living costs would add pressure – "The combination of rising cost of living, interest rates and house prices mean buyers who delayed and missed out on a purchase last year may now be finding that it's increasing difficult to move". As per the latest reading of HM Land Registry's UK HPI at the time of publication (30 November 2022), the average price of a property in the United Kingdom was £294,559 in September 2022 – up 9.5% relative to September 2021 – while the monthly index figure for September 2022 was 154.5 points. Over 2022, UK house prices rose by an average of 9.8%. However, growth is forecast to slow in 2023-24 owing to elevated interest rates and ongoing inflationary pressures, resulting in a 3.6% decrease.
Despite efforts made by the BoE MPC, to leverage monetary policy in an attempt to support economi...
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